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    EPS, PE, and Mergers

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    The shareholders of Flannery Company have voted in favor of a buyout offer from Stultz Corporation. Information about each firm is given here:
    Flannery Stultz
    Price-earnings ratio 5.60 16.80
    Shares outstanding 59,000 177,000
    Earnings $225,000 $900,000
    Flannery's shareholders will receive one share of Stultz stock for every four shares they hold in Flannery.

    Question 1:
    (a) What will the EPS of Stultz be after the merger? Round your answer to 2 decimal places. (e.g., 32.16)
    EPS: $__________
    (b) What will the PE ratio be if the NPV of the acquisition is zero?(Round your answer to 2 decimal places. (e.g., 32.16)
    PE ratio: ______

    Question 2:
    What is the value of Flannery to Stulz?
    Value of Flannery to Stulz: $___________

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    Solution Preview

    (a) Total Earnings after the merger = $225000+$900000=$1125000
    Outstanding shares = shares issued to Flannery shareholders + outstanding shares of Stultz before the merger

    EPS = Total earnings / total ...

    Solution Summary

    Provides steps necessary to determine value of EPS, PE and Mergers.